American Savings Bank boosted earnings 14.6 percent during the first three months of the year as it grew its loan portfolio for the sixth consecutive quarter.

It also set aside $1.1 million less in its reserve for loan losses than in the same period last year.

"It was a pretty good quarter for the bank in a tough environment to earn money," American Savings President and CEO Rich Wacker said. "It’s a very good time to be a borrower with low interest rates. Our team has done a good job trying to grow the asset and controlling operating costs and credit costs."

American Savings said its net income increased to $15.9 million from $13.9 million in the year-earlier period, while loans increased 3.2 percent from the fourth quarter to remain in line with the bank’s growth target for the year. The state’s third-largest bank also said its non-interest income, which includes service charges and fees, rose 7.2 percent to $16.6 million from $15.4 million a year ago primarily due to higher gains on sales from loans.

Monday was the first time American Savings, a subsidiary of Hawaiian Electric Industries Inc., reported earnings ahead of its parent company. New requirements mandate that federally regulated banks file their financial results no later than 30 days after the quarter ends. HEI, which owns the state’s largest utility, will release its earnings May 8.

Shares of HEI fell 2 cents Monday to $26.54 on the New York Stock Exchange. The results were announced after the stock market closed.

The bank said residential mortgage origination was up 73 percent from a year ago but that it continues to sell the majority of its low fixed-rate mortgages to the secondary market to control the risk from unfavorable interest rates. During the quarter, American Savings reduced its exposure to 30-year, fixed rate residential mortgages by $38 million.

"We feel as interest rates rise over the terms of (some of) those mortgages, there’s going to be very little profitability in those mortgages, and it would be difficult to hold them for that long," Wacker said. "So we end up selling the investments to Fannie Mae or Freddie Mac."

However, Wacker noted that even though the bank sells the investments, it retains the servicing of the loans.

"We view them as customer relationships," he said.

On a year-over-year basis, total loans increased 3.5 percent in the first quarter to $3.7 billion from $3.5 billion in the year-earlier period.

In other categories, total assets rose 2.2 percent to $5 billion from $4.9 billion, while deposits increased 2.2 percent to $4.1 billion from $4 billion.

Net interest income, the difference between what the bank pays depositors and what it brings in from loans, slipped 0.6 percent to $45.7 million from $45.9 million.

Wacker said that while the prolonged low-interest-rate environment continues to challenge revenue in the near term, the bank is remixing its loan portfolio to be well positioned when interest rates rise.

Nashville, Tenn.-based banking analyst Brett Rabatin of brokerage firm Sterne Agee said it makes sense for American Savings to sell some of the mortgage loans it originates.

"You wouldn’t want to keep it on the balance sheet," Rabatin said. "You’d run the risk of putting on longer-date risks at historical low interest rates. I wouldn’t blame anyone for selling 30-year production at these rates."

Wacker said the bank is seeking steady, modest loan growth and not trying to grow too quickly.

"We believe there’s opportunity to grow on the commercial side as well as the consumer side with our home Equity Express product," he said.

American Savings also benefited last quarter from the release of $1 million in tax-related reserves for positions the company had taken in previous years. The bank said the tax positions it took were proper and that it no longer needed to keep the additional $1 million in reserves.

Analyst Jim Bellessa Jr. of Great Falls, Mont.-based D.A. Davidson & Co. said that even though the bank doesn’t separately have outstanding shares since it’s a subsidiary, its earnings equated to 16 cents a share and exceeded his forecast by a penny. He said the $1 million, release of tax-related reserves and the gains on the loan sales created the upside surprise.

"It was a solid quarter," he said.

Bellessa, who has a "neutral" rating and a $25 price target on HEI’s stock, said he will revisit the rating and price target as a result of the bank’s earnings to see whether he will raise his earnings estimate.

He said that HEI’s owning both a utility and a bank is a complementary marriage.

"The utility is a capital-using business and capital-intensive, whereas the bank is a capital-generating entity," he said. "So together they match each other because you have cash flows from the bank that can help fund the capital expenditures from the utility."

American Savings paid dividends of $10 million to HEI in the quarter.